Vertical Analysis of Income Statement

Revenue and expense data for Innovation Quarter Inc. for two recent years are as follows:

	Current Year		Previous Year
Sales	$538,000		$457,000
Cost of merchandise sold	306,660		237,640
Selling expenses	91,460		86,830
Administrative expenses	102,220		77,690
Income tax expense	16,140		22,850

Question Content Area

a. Prepare an income statement in comparative form, stating each item for both years as a percent of sales. If required, round percentages to one decimal place.Enter all amounts as positive numbers.

Innovation Quarter Inc. Comparative Income Statement For the Years Ended December 31

	Current year Amount	Current year Percent	Previous year Amount	Previous year Percent
Sales	$538,000	fill in the blank f0d382fd7fe2fe9_1%	$457,000	fill in the blank f0d382fd7fe2fe9_2%
Cost of merchandise sold	306,660	fill in the blank f0d382fd7fe2fe9_3%	237,640	fill in the blank f0d382fd7fe2fe9_4%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Selling expenses	91,460	fill in the blank f0d382fd7fe2fe9_10%	86,830	fill in the blank f0d382fd7fe2fe9_11%
Administrative expenses	102,220	fill in the blank f0d382fd7fe2fe9_12%	77,690	fill in the blank f0d382fd7fe2fe9_13%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%
Gross profitIncome from operationsNet incomeTotal operating expenses	- Select -	- Select -%	- Select -	- Select -%
Income tax expense	16,140	fill in the blank f0d382fd7fe2fe9_24%	22,850	fill in the blank f0d382fd7fe2fe9_25%
Gross profitIncome from operationsNet incomeTotal operating expenses	$- Select -	- Select -%	$- Select -	- Select -%

Question Content Area

b. The vertical analysis indicates that the cost of merchandise sold as a percent of sales

increaseddecreased

by 5 percentage points, while selling expenses

increaseddecreased

by 2 percentage points, and administrative expenses

increaseddecreased

by 2 percentage points. Thus, net income as a percent of sales

increaseddecreased

by 3 percentage points.

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